Rough Recession Tests Brothel Boundaries

To understand just how bad the economy is in Nevada these days, look no further than Dennis Hof and the strange opportunities he sees on the horizon.

With a porn star named Sunny on his arm, Nevada's most famous brothel owner was on a shopping spree, looking to pick up a newly shut down casino in the heart of downtown Reno.

"This is it. I love this place," Hof said as he exited his limo. "Look at this. We could put right up here 'Sunny Lane Appearing.'"

"Yes, I love it!" Sunny said.

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Hof and his Bunny Ranch brothel are the stars of HBO's hit "Cathouse," a reality show set in America's most-famous legal brothel.

"You're on the biggest street in Reno," he said from the limo. "You're on Virginia Street. This is where all of the hotels are, where all of the casinos are. And this is where we need to be. This is where the Bunny Ranch needs to be stationed."

Nevada State Sen. Bob Coffin said there is a $2 billion budget shortfall and proposed cuts that include teacher salaries have left Nevada with little choice but to get creative.

"People are licensed to gamble," Coffin said. "They are licensed to sell cigarettes. They are licensed to sell alcohol. Why not license everything we consider a vice."

Including sex.

His proposal is to tax the state's legal brothels. Right now, they pay county taxes. He'd also like to decriminalize prostitution statewide, clearing the way for the brothel business to set up in Reno and "sin city" itself -- Las Vegas.

The state senator estimates that Nevada could bring in an immediate $2 million a year by taxing the existing brothels, and up to $200 million a year if the brothel business is allowed to expand into Vegas.

Licensing Sex: 'The Business Is There'

That is why Hof was on a shopping spree.

"I could see us having a 500-room brothel in Las Vegas; the business is there," he said.

He's betting that the state has grown desperate enough to allow businesses like his to grow further into the mainstream.

It's also why he's singing a different tune about paying taxes than you might otherwise imagine.

"Well, of course, we want to pay taxes," said Hof. "Our state has a problem. Everybody should chip in. All of the small businesses should chip in. Everybody should chip in. I think they are right on the money. I'm glad they're doing it, because prostitution is everywhere in Las Vegas under the guise of escort agencies."

Las Vegas isn't exactly short on sex already.

Ads for "escorts" are pushed on pedestrians walking the strip and flaunted before anyone with their eyes open driving through town.

Raised Eyebrows From 'Mainstream' Community

But the city's "mainstream" business community said bringing brothels to the city crosses a line.

"I think it has more potential to serve to keep people away -- tourists and potential people who may want to move here for jobs or to start companies -- than it would ever attract," said Steve Hill, chairman of the Las Vegas Chamber of Commerce.

And then there are the millions of annual visitors who bring their kids to Las Vegas.

But Coffin believes his idea would actually help protect women by regulating the industry.

Walking through the historic Nevada town of Virginia City, Hof told "Nightline" his business is as much a part of this state's history as gold mining.

It is, he says, part of the Wild West culture that today has evolved into Las Vegas.

Sex -- the Answer to Recession?

Back at the Bunny Ranch, where just about everything is for sale, Hof's ladies seem to be sold on the idea.

"There's no way that you can establish a place like this and not make money and help the economy," said Cheyenne Capri. "It's impossible."

And Hof doesn't see it as just a punch line to some crude joke. After all, he is a businessman.

"Well, nothing is going to change ... if they put prostitution into Las Vegas or Reno," he said. "It's going to be in certain areas, controlled. The signage is going to be a certain size. It's not going to be in your face. You're not going to have big billboards that say, 'Hookers, 8 miles away.' That's not going to happen."

And so the shopping spree for prime brothel real estate rolls on -- counting on a recession to bring good times to the most controversial business in America.